Ralph, aged 36, and Danielle, aged 33 are married for many years. The couple are jointly assessed

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Question:

Ralph, aged 36, and Danielle, aged 33 are married for many years. The couple are
jointly assessed for income tax purposes and have provided you with the following
information:
Ralph
Ralph has been carrying on a business as a sole trader running a hardware shop for
many years. He prepares his accounts annually to 31 July. The Statement of Profit or
Loss for Ralph’s business for the year ended 31 July 2020 is as follows:
NOTES € €
Sales 2,395,862
Less Cost of Sales (1,531,248)
864,614
Other income:
Irish deposit interest (net of 33% DIRT) 1 1,400
Irish rental income 1 55,000
Irish dividends (gross of 25% DWT) 1 9,000 65,400
930,014
Less Expenses:
Salaries and wages 2 267,240
Rent and rates 3 88,550
Motor and travel expenses 4 34,316
Bad and doubtful debts
Interest on late payment of taxes
5 2,800
985
Interest on late payment of taxes
Repairs and renewals
6
985
Repairs and renewals 6 30,500
Interest
Depreciation
7 990
13,125
Depreciation 13,125
Insurance 8 11,850
Sundry expenses 9 11,080 (461,436)
Net profit 468,578
Cont…./
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Question 1 Cont…./
Notes
1 Rental income
Ralph had operated his business from a shop premises that he rented from an
unconnected party for many years. On 1 September 2019 the business moved to a
new shop premises. The market rent payable on the new shop premises was €48,000
per annum. On 1 September 2019 Ralph sub-let the old shop premises to an
unconnected party at a rent of €5,000 per month. You have been advised that there
will be no increases in the annual rental costs for the foreseeable future.
Deposit Interest and Irish Dividends
Income from Irish deposit interest and Irish dividends were earned in the
period 1 January 2020 and 31 July 2020. This was the only deposit interest and
dividends received by Ralph during 2020.
2 Salaries and wages
€
Ralph’s salary 94,000
Ralph’s PRSI 3,760
Ralph’s sister Patricia salary (gross before deduction of PAYE)* 32,000
Other employees’ salaries 124,500
Other employees’ PRSI 4,980
Pension contributions paid on behalf of employees 8,000
267,240
* Ralph’s sister Patricia, an accountant, works part-time in the business. PAYE is
operated on her salary and has been calculated as €3,000.
Cont…./
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Question 1 Cont…./
3 Rent and rates
€
Rent of old shop premises 42,000
Rent of new shop premises 44,000
Rates on old shop premises 1,220
Rates on new shop premises 1,100
Bin collection from Ralph's home 230
88,550
4 Motor and travel expenses
€
Lease payments on Ralph’s car* 9,800
Motor expenses for Ralph’s car* 4,366
Parking fines 150
Holiday for employee ` 2,400
Motor expenses for sales rep** 12,900
Write off of employee loan 1,600
Trip to France for trade fair 3,100
34,316
*Ralph’s car had an original retail price of €32,000 when first leased on 1 December
2014. The car has CO2 emissions of 138g/km (Category C).
Ralph estimates that he uses the car 30% for business purposes and 70% for personal
purposes.
**Ralph purchased two sales rep motor vehicles on 21 November 2017 and has
provided you with the following details:
1. Car 1 – Retail price €20,000 Category A
2. Car 2 - Retail price €30,000 Category D
Cont…./
©UCD 2020/2021 Page 6 of 19
Question 1 Cont…./
5. Bad and doubtful debts
€
Bad debts written off as irrecoverable 5,000
Bad debts recovered (3,000)
Decrease in specific bad debt provision (2,100)
Increase in general bad debt provision 2,900
2,800
6 Repairs and renewals
€
Cash registers* 12,500
Computers ** 8,000
New alarm system for new shop premises (installed July 2020) 10,000
30,500
*Ralph purchased new cash registers for the new shop premises in December 2019
and these were put into use in the business immediately.
** Ralph purchased new computers on 27 July 2020 which were delivered to the shop
premises on 2 August 2020.
7 Interest €
Interest on loan to acquire cash registers 600
Interest on working capital current account 390
990
8 Insurance
€
Property insurance on old shop premises 3,000
Property insurance on new shop premises 1,500
Public liability insurance 4,750
Home insurance for Ralph’s house 2,600
11,850
Cont…./
©UCD 2020/2021 Page 7 of 19
Question 1 Cont…./
9 Sundry expenses €
Business telephone 1,200
Business light and heat 2,950
Ralph’s mobile phone* 850
Staff Christmas party 350
Gifts to corporate customers 900
Accountancy fees 2,900
Donation to registered charity 800
Donation to political party 630
Subscription to trade journal 500
11,080
*Ralph estimates that his phone is used 20% for business purposes.
Ralph has also provided you with the following information:
Ralph paid the following from his personal bank account:
1. On 1 December 2020 €60,000 into his personal pension plan.
2. Preliminary tax of €24,000 for 2020
Danielle (Ralph’s wife):
On the 1 April 2020 Danielle purchased a residential property in Dublin. Danielle took a
loan to fund the purchase and paid €3,000 loan interest in 2020. Danielle has provided
you with the following information regarding the property:
• The property was first let on 1 June 2020
• Before letting the property was painted at a cost of €1,400
• Gross annual rental income €24,000 was agreed
• Advertising costs to locate a tenant of €600 were paid in May 2020
• Legal fees in connection with signing the lease of €500 were also paid in
May 2020
• Danielle is registered with the RTB and paid €40 fee
• General repairs costing €1,000 were paid in September 2020
• Danielle agreed to pay a builder €14,000 to extend the kitchen. This
payment was made in July 2020.
During 2020 the couple paid qualifying medical expenses of €5,200. €1,000 was
refunded by their private health insurer.
Cont…./
©UCD 2020/2021 Page 8 of 19
Question 1 Cont…./
REQUIREMENTS:
Ralph and Danielle have asked you to:

Part (a) – 30 marks
1) Calculate Ralph’s capital allowance claim for 2020 including the TWDV at 31
December 2020.
2) Compute Ralph’s Case I taxable profits after capital allowances (calculated in
part (1) above) for 2020.
3) Compute Ralph and Danielle’s total taxable income for 2020.
4) Calculate Ralph and Danielle’s income tax payable/refundable for 2020. (You
can ignore PRSI and USC)
5) On what date should Ralph and Danielle file their 2020 income tax return to
avoid surcharge for late filing of a return.
Part (b) – 10 marks
Briefly explain to Ralph and Danielle your calculations and/or adjustments for the
following: (Bullet point answers are acceptable)
1. Lease payments of Ralph’s car
2. Danielle’s Case V rental expenses claim
3. Ralph’s pension relief claim